Pensions are protected against bankruptcy. In a bankruptcy filing, the majority of retirement resources are safeguarded. The retirement assets are either not part of the estate or you might claim that they are immune from creditors’ claims.
The bankruptcy exemption of more than $1 million for IRAs was, in my opinion, the sole positive outcome of the 2005 changes to the Bankruptcy Code.
Estate exempt from ERISA plans
Employee interests in qualifying pension plans under ERISA, the federal statute governing pensions, are not assets of the estate; the debtor is not even required to exclude them from bankruptcy distribution. The trustee cannot sell an asset for the benefit of creditors if it is not a part of the estate.
Exemptions safeguard additional retirement funds
Under Section 522(n) of the Bankruptcy Code, retirement funds that are assets of the estate, such as some Keogh plans and IRAs, may be claimed as exempt up to $1 million or more. Regardless of state law exemptions, this exemption was added to the bankruptcy laws in the 2005 modifications and is open to citizens of any state. However, residents of states that prohibit the use of the other bankruptcy exemptions in cases brought by its citizens are still eligible for the fat IRA exception.
State exemptions are also relevant.
Retirement plan exemptions that may be found in state law are supplemented by these provisions of federal bankruptcy law, not replaced by them. For instance, CCP 704.115 in California provides a fairly comprehensive clause safeguarding the debtor’s rights in private retirement plans.
These clauses all have the requirement that a plan be included in common. This refers to a financial account that makes use of the enabling law or is managed by a pension trustee. It is insufficient to have a specific asset or otherwise common bank account psychologically designated as your “retirement savings.”
If you reside or visit Los Angeles or Texas, Recovery Law Group is a recognised firm that can help you with any of your bankruptcy-related issues. You may reach them by phone at (888) 297-6203 or online at https://www.recoverylawgroup.com/bankruptcy/